The Road Ahead in Grains Something Akin to Importing Snow to Canada

  I finished soybean harvest today.  It was a tremendous crop in southwestern Ontario.  Yields are strong, 60 plus and 70 bushels per acre were very common near Dresden.  In many ways, it is not a surprise.  I drove from Dresden to St. Louis and back this past August at the height of the worst drought in 50 years and the best crops I saw were at home.  It is what it is.  I’ve been on the other end of the stick many times.

Of course soybean prices have been on the retreat for many weeks now.  In late August I toured for Farm Credit Canada talking about grain volatility.  I ended the presentation by saying how vulnerable we were because beans were at record levels.  Soybeans are $2 lower than they were in early September when they hit $17.89.  That’s what vulnerable is.  Now the question is where to we go from here.

The October USDA WASDE report gave us a few clues today when it was released during live trading Thursday morning.  Grains surged on the USDA pegging corn at 122 bushels/acre, down slightly from last month.  The USDA also lowered corn-ending stocks down to 619 million bushels, putting the stocks to use ratio at 5.6%.  Soybean production was actually raised to 37.8 bushel per acre, up from last month, with the stocks to use ratio pegged at 4.5%.  The corn numbers were seen as a surprise and corn almost went up limit Thursday.  It was a cold slap in the face for grains after retreating over the last several weeks.

It was an interesting USDA report, because I think it said to the market, not so fast, we’ve just had the mother of all drought/supply constrictions and the way ahead isn’t going to be so smooth.  We made need much higher prices to ration demand even further!

For Canadian grain farmers it is mostly all good news.  How can it not be?  Sometimes I think there is the inclination within our agricultural space to negate some of this good news.  For instance, during the fog of my harvest progress, I got an email from a journalist wanting me to comment on the price of grains.  I made the necessary connections, and today I got the call.  I filled her in the best I could on how I saw the grain markets.  However, at every turn, she tried to get me to say, there is a dark shadow over farming, even at this time.  I simply told her, that is not the case.  We’ve had grain prices at record levels recently and that can only be construed as good if you produce crops.  Looking ahead into 2013, why not be optimistic.

Needless to say, the road ahead is lined with so called “geniuses” that thought they knew what was coming.  I don’t know, but I do know I’m in the game and I’ll try as hard as I can to manage my business into the future.  Grain prices are important to me, and as I look ahead, I think it’s all about South American crops and US corn in 2013.

So if we get 81 MMT of soybeans in Brazil and 55 MMT in Argentina this year, everything might work out.  Ditto for that 14 billion bushel crop of corn next year in the US.  That’s if the sun shines and it rains every three days, like it did near Dresden Ontario during 2012.  However, it’s unlikely, very unlikely in 2013.  Agriculture doesn’t work that way usually; an unexpected Tuesday weather event comes along to impact our own rosy yield dreams.

What that means to me is there will be great marketing opportunities for both old crop and new crop ahead.  Key will be patience and daily market intelligence and having the chutzpah to pull the marketing trigger in highly profitable territory.

There will be many factors weighing on our marketing decisions within this environment.  Yes, the US dollar, quantitative easing and the US fiscal cliff are boosting our loonie, putting pressure on Canadian cash grain and livestock prices.   I recently heard from one livestock producer who called the high Canadian dollar, the “silent killer”.  It can be that way for grains too.  The road ahead in this arena won’t be pretty.  See my musing about $1.40 loonie of a few weeks ago.

In a few weeks, Ontario will be exporting corn into the United States.  Why?  Simply put, we’ll probably have, as usual, the cheapest corn in North America and our American friends will want it.  I have said in the past somebody objectively on the outside might think it akin to exporting snow into Canada in January.

In the end, it’s all about the money.  So grain moves where it can be bought and sold profitably, ditto for currencies, bonds, derivatives, etc., etc.  The road ahead into 2013 continues to evolve.  Grain markets will continue to be dynamic.  There will be more surprises.  So when we start importing snow, hold on tight.